My position on the economy:

1)      Taxes need to simpler, fairer, and as low as possible to allow American businesses to thrive, American innovation to flourish and American citizens to build wealth. Achieving this means securing the Bush tax cuts, bringing down corporate rates, eliminating taxes on capital gains, dividend and estates, reforming the Alternative Minimum Tax, bringing down the payroll tax through Social Security reform and considering bold ideas like the Fair Tax.

2)      The national debt is a real problem for America’s future economic competitiveness and must be addressed. However, it must be addressed responsibly without sacrificing our security situation around the world or resorting to ancillary scare tactics which do little to clarify the issue. The debt is most responsibly addressed by controlling what Congress spends and scrutinizing the billions of dollars being spent on broken, failing programs and hidden earmarks. At the same time we must allow the American economy to flourish and grow through low, sensible tax rates and responsible free-market oriented policies. Finally, we need to reform entitlements and reduce our unsustainable unfunded liabilities.

3)      The trade and current account deficits are reflections of global capitalism and foreign investment in the U.S. There are far more pressing problems upon which policymakers need to focus their attention. 

4)      A certain amount of Inflation is a normal result of economic growth and should be controlled by proper Federal Reserve interest rate policy. 

My primary opponent’s position on the economy:

While my opponent and I agree on a number of things, including simple, fair and low taxes, elimination of unnecessary regulations and spending reduction, his economic platform consists of a number of flawed policies and ideas.  

1)      “Unsustainable” military/defense spending is the first place leaders need to look when searching for ways to reduce the debt.

2)      Foreign holdings of U.S. Treasury bonds are problems which deserve the attention of policymakers.

3)      Trade and current account deficits need to be given urgent attention because the U.S. is ““reliant” upon other countries to fund them.

4)      Inflation is the result of the Federal Reserve printing money and the U.S. will be best served by allowing gold to be an alternative form of currency.  

Where and why we differ……..

National Debt

My opponent frequently refers to the national debt, and he has every right to be concerned. But responsible statesmanship requires that issues be presented to the American people in a thoughtful, rational manner, and, unfortunately, my opponent engages in a number of straw-man arguments that do little to clarify this issue. He prefers to attack me and mischaracterize my position; insinuating many times that I don’t think the debt is a problem. I will set the record straight right now-

I believe the national debt is a real problem to our economic future that our leaders must be aware of and take steps to address. Large deficits now represent irresponsible deferred future taxation and impose a birth tax of over $30,000 upon every child born in America. However, I do feel it is important to make the American people aware that there are complex aspects to this issue which require a little thought and introspection. If that sort of careful thinking subjects me to charges of “not caring,” then I fear we have set low standards regarding what we expect of our elected leaders.

The National Debt and Responsible Prioritizing

The debt doesn’t exist in a vacuum- Washington spends money on a multitude of programs, some of which are necessary, others of which are not. Providing for the safety and security of the American people are at the very top of essential government duties, a point made repeatedly in The Federalist Papers. The only time defense should be the first in line for spending cuts is when it begins to eat an inordinate amount of a nation’s GDP. The Soviet Union, for instance, collapsed under the weight of its debt partly due to the fact that it spent 17% of its GDP on defense. By contrast, the United States today spends about 4% of its (relatively larger) GDP on defense, surely not enough to justify drastic cuts in order to bring down the debt. 

My opponent chooses to ignore these facts and, instead, misleads and misinforms Fourth District Republican voters. He uses words and phrases like “occupation,” “policing the world” and “global empire,” to justify a drawdown of combat troops in Iraq and stationed troops in other countries. I discuss elsewhere in my website the importance, from a National Security perspective, of America staying engaged in Iraq and around the world. Cutting the debt is not honorable if it means we are reducing our already meager defense spending such that we cannot defend ourselves or have to watch dangerous countries increase their power at our expense. The priorities of responsible statesmen should be on finding other ways to reduce the debt.

If my opponent was truly concerned about unsustainable spending, he would spend less time echoing leftist college radicals in bashing defense spending, and more time talking about entitlements and wasted domestic spending, because those are the true threats to our survival. Entitlements (Social Security, Medicare, Medicaid) already eat up over half of our budget and are on a pace to consume the entire national budget by 2020. They must be reformed immediately to create more efficient and less expensive programs. As starting points, I think that Social Security needs to allow for personal accounts, Medicare needs to evolve into a more cost-effective program like FEHBP and that Medicaid needs to be funded through mechanisms like block grants.

The other step is to finally take responsibility for the money being wasted throughout government. A government subcommittee in 2006 identified over $200 billion in waste, fraud, abuse and duplication spent through various programs each year, in addition to over $500 billion in questionable spending (including over $50 billion in hidden earmarks). Afraid of offending lobbyists or constituents, lawmakers refuse to take a good hard look at the efficiency of these programs or analyze where taxpayer money is really going. They blindly appropriate and authorize more money for these programs each year while more money is spent on new programs. Lawmakers must have the courage to look at failing or inefficient domestic/foreign programs and reform them as needed. If they do so, the deficit will come down dramatically as government spending, which currently eats up 20% of GDP, comes back in line with tax revenue.

So while I want to reduce the debt by reforming entitlements and eliminating wasteful domestic spending, my opponent wants to reduce the debt by cutting defense spending and disengaging with the world. Few other issues so clearly demonstrate the differences between us.

Foreign Bond Holdings

My opponent likes to paint a picture of U.S. economic despair which goes something like this: the U.S. is running up a debt and is forced, out of desperation, to sell treasury bonds to other countries (mostly China) in order to fund this debt. The implication that we sell treasury bonds to other countries only as a tactic to fund our debt and that China is incorrect.

First off, China is not even close to owning the largest stock of U.S. treasury bonds. That honor belongs to our friend and ally Japan ($580.9 billion). China is second with $387 billion and the U.K. is third with $315.6 billion. So if China “owns” our debt, so do Japan and Britain. So do many other countries around the world. Constantly referring to China in the context of the national debt, as my opponent does, paints a misleading portrait of our situation and Republican voters of the Fourth District should be made aware of the full aspect of this issue.

But what about this idea that other countries holding our debt is entirely a bad thing and we are desperately asking foreigners to fund it? Of course, owing money should be avoided if at all possible; the more debt we owe, the less of our national income we keep in the long term. But the causal relationship between holders and buyers of bonds is not all one way. National governments are well aware of their economic situation and on the principle of national interest alone, are not going to spend money to invest in countries which they feel will make them no profit. By choosing to buy U.S. treasury bonds, foreign governments are, essentially, casting votes of confidence in the American economy; viewing the American economy as a sound investment which will give them the greatest return on their dollar. It demonstrates they still believe in the vitality of the American entrepreneurial spirit and are confident that America will remain an economic powerhouse. It also means that these governments now have an interest in seeing America do well, for if the American economy goes under, so do their investments. There is no reason to think that by “buying our debt,” other countries will now try to wreck our economy. The national debt must be dealt with, but it doesn’t do anyone any good to spend time engaging in misleading rhetoric about where our treasury bonds are going.

Trade Deficits

My opponent spends a lot of time bemoaning the U.S. trade and current accounts deficits. His blog is littered with constant references which lure the reader into believing these issues are giant problems necessitating drastic action. At a recent county GOP convention, my opponent lined the tables with a ranking of countries according to their “Current Account Balance.” The obvious intention was to show how far down the United States is in terms of negative current account balance and justify his claims that we are “reliant” upon other nations to fund our current-account balance. He paints a picture of foreign governments buying up and storing U.S. dollars as a tool to wield against us in the future. This is a tactic used by many on the left as well. Like them, my opponent misunderstands the nature of trade deficits and is, thus, spending time attacking an issue which isn’t worth the attention put on it.

The U.S. has a current account deficit of around $747 billion dollars. But the current account balance is one of two measures of a country’s balance of payments in trade. Indeed, anyone who understands basic accounting principles knows that in all monetary measures, accounts must balance- for every debit there must also be a credit. In trade relations, capital inflows represent those credits. So a large current account deficit simply reflects two truths- United States consumers buy imported goods in massive quantities, and foreign companies and governments invest heavily in United States business and economic productivity.

My opponent claims that we are “reliant” upon these capital inflows to prop up our deficit, but this is misleading. Foreign businesses and governments accumulate U.S. dollars as American consumers buy their goods and services. What can any foreign entity do once they have these dollars? They really only have very limited choices:

1)     Buy goods and services from the United States; or

2)     Make an investment in the U.S.  

It is possible that foreign governments could “dump” a portion of their dollar holding onto the foreign exchange market. But such a scenario would be very costly, because it would depress the value of whatever dollar holdings remain. Throwing all their dollars onto the market and getting nothing in return would be even costlier. Foreign entities could also exchange dollars for other currencies. China, for example, might want to work with a French bank in exchanging some dollars for euros, but now those dollars are being held in France and it is France who has to figure out where to put those dollars. It doesn’t matter what journey dollars take, eventually they must find their way back to the U.S. Thus, foreigners spend and invest money here not because we are desperate or “reliant” upon them doing so, but because foreigners who accumulate dollars have no other choice.

So the U.S. current account balance is in deficit, but what does it really matter since it means that just as much money is being re-circulated back into American capital formation? Foreign investors have faith in the productivity and dynamic enterprising of the American economic spirit; they know that, despite the need for improvement, the American economy is still unique throughout the world in its healthy entrepreneurship, transparency, property-rights protection and low taxes on capital. This is something to be celebrated, not criticize.

So where is there need for the sort of panic coming from my opponent?

Could it be that current account and trade deficits are harmful to the economy? A number of countries with stronger current account balances are not exactly bastions of economy prosperity and growth- Algeria, Venezuela, Nigeria, Angola and Iran. Japan and Germany have some of the highest current account balances in the world but have lagged behind the U.S. economy over the past 3-4 years. Meanwhile Spain, Ireland and India have experienced rapid economic growth in recent years to go alongside a large current account deficit. So there is no evidence of current account deficits correlating with poor growth.

Is it that current-account deficit responsible for the decline of the dollar? Forex values are highly complex and subject to a number of different factors. The impact of the trade imbalance is negligible since, as explained earlier, dollars spent on foreign goods and services are just re-circulated back into the American economy so the supply/demand of dollars balances out in the long-run. Hoarding dollars in foreign exchange reserves contributes, if anything, to a stronger dollar since those dollars are being taken out of circulation.

There really is very little need for constant harping on this issue. My opponent has every prerogative to continue harping on it if he so chooses and I have no doubt that he does so out of a true concern for America’s competitiveness. But I’ve discussed the reasons why it is a misplaced priority which takes our focus off of measures which will generate true economic reform. I prefer that we focus on reducing the domestic budget deficit, a real threat which trades taxation tomorrow for spending today; making government more efficient with the money it takes in from taxpayers; reducing the corporate tax rate, reforming tort laws and eliminating red-tape and complex tax codes which make life difficult for small businesses.

Gold and deflation

My opponent takes some radical approaches to combating inflation, extolling the virtues of a currency that can be converted into a specified commodity quantity, such as gold. According to him, such a system would be preferable to the monetary regime we have today, known as fiat-currency, because it would supposedly allow for more stable purchasing power of each dollar.

The problem in this sort of thinking becomes quickly apparent when one thinks about where the value of that commodity will come from. Commodities like gold and silver have many non-economic uses which largely drive the supply/demand of that item. Linking a currency to a commodity in this way ensures that the value of the currency will be determined not by the supply/demand of money, as it is in a well-run fiat currency system, but by artificial factors which can cause instability and economic dislocation. The value of money should be determined by supply/demand and a fiat-currency is the only system that can link the supply of money with the demand.

My opponent claims that he just wants to see real competition in the monetary system by allowing transactions to be conducted in gold or dollars, whichever one prefers. This is a recipe for disaster when one thinks about the kind of mischief that could occur from self-interested businesses tabulating their value according to whichever standard made them look better, while individuals and debtors could calculate their taxes and net worth the same way, depending on whichever standard worked more in their favor. Far from stabilizing the economy, a multi-currency system would likely produce chaos and disruption on the financial markets.

My opponent mischaracterizes the phenomenon of inflation (too much money in the system), implying that it is the result of the Federal Reserve printing more and more money. The truth is that the Fed controls the amount of money in the system through interest rates, essentially the price of money, not the quantity of printed money. Higher interest rates ensure that money comes out of the system by making money more expensive and lessening demand, lower interest rates have the opposite effect. Out of control inflation in the late 70’s and early 80’s wasn’t solved by the printing of less money, it was solved by the Fed’s sustained high interest rates which, over time, dried up the massive over-supply of money floating through the system. My opponent is mistaken if he thinks that railing on over-printing is going to solve inflationary problems. Inflation needs to be controlled by tough oversight from Congress. If the Fed is making monetary policy mistakes with too low or too high interest rates, the people’s representatives need to be a check and hold them accountable.

Finally, my primary opponent, after mischaracterizing inflation, would have Americans believe deflation isn’t such a bad thing: “Why must we fear deflation?” he asks on one of his blog postings. The answer is that deflation is generally perceived by economists to be worse economically than an equivalent amount of inflation. Deflation punishes those who build wealth through hard assets like real estate, which happen to be the majority of the American people. Deflation severely distorts wages, making life harder for businesses. For a reminder of what steady deflation brought to the U.S., one need look no further than the series of financial and economic crises experienced by the country in 1873, 1884, 1890, 1893 and 1907, when the U.S. was on a gold standard and deflation was steady. Most governments around the world set a growth target that includes a certain amount of inflation because they recognize that a steady, low amount of inflation does less damage than steady deflation.